Belts begin to tighten as rising cost of living eats into non-essential spending

Consumer spending grew by close to a fifth (19%) in February compared to the same month in 2021, despite the rising cost of living starting to show signs of impacting behaviour, according to Nationwide’s latest Spending Report.

The Spending Report is a full monthly breakdown of around 190 million debit and credit card and direct debit transactions. During February, transactions accounted for more than £6.9 billion of spending, which is down nine per cent on the total amount spent in January.

Data shows people spent four per cent less on non-essentials in February compared to January – traditionally the quietest month of the year for spending. However, it was still significantly higher (+44%) than February last year, mainly due to the lockdown restrictions at the start of last year.

Essential spend rose by 16 per cent in February compared with the year before. With energy costs continuing to rise, it’s no surprise that spending on utilities and bills rose by 15 per cent compared to February 2021, while the amount that the Society’s members spent on fuel and electric vehicle charging rose by 70 per cent due to the increasing cost of fuel, more switching to electric and the fact more are commuting to work once again – irrespective of how their vehicles are powered.

Despite a slight dip in the amount of discretionary spend, holidays continued to be a major area where people are putting their spare money. Airline travel, cruises and holidays all saw month-on-month spending growth. Both eating and drinking, and leisure and recreation also saw a jump of four per cent month-on-month, likely as a result of more people returning to offices and socialising with colleagues and friends.

In terms of how the nation pays, the number of transactions made by mobile phone to tap and go increased by five per cent month-on-month as people continue to enjoy the convenience of paying by contactless.

Non-essential spend

Nationwide members spent just over £2.4 billion in February on non-essential items (down 4 per cent on January), based on nearly 83 million transactions (down 3% versus January):

• Holidays: The positive mindset that started the year continued into February with people continuing to make travel plans for the coming year. Spending on airline travel (3%), cruises (19%) and holidays (14%) all saw another month-on-month increase – among just a clutch of categories to see growth in spend in February. Year-on-year, largely as a result of the pandemic, those categories saw a respective increase of 464 per cent (airline travel), 730 per cent (cruises) and 335 per cent (holidays).
• Eating & Drinking: With the Government removing the WFH guidance at the end of January, there has been a four per cent increase in month-on-month spending on eating and drinking as people enjoy time with friends and family and begin to socialise with their colleagues once again.
• Gardening: Spending on gardens saw one of the highest month-on-month growth rates in February with people spending £16.3m in February (+14% on January) as they begin to prepare for the spring season and the nicer weather in order to enjoy their outside spaces.
• Dating: While gardens may be getting more attention in February, love lives are taking a back seat as spending on dating fell by 13 per cent compared to the previous month. However, it is still up 8 per cent year-on-year.

Essential spend

More than £3 billion was spent by Nationwide members on essential items in February (+16% vs February 2021) with around 92.5 million purchases made (+28% versus same time last year):

• Utilities and bills: With the rising cost of living and bills rising, particularly energy, it’s perhaps no surprise that spend on utilities and other bills has grown 15 per cent compared to February 2021.
• Debt: Spending on debt saw a year-on-year uplift of 23 per cent in February as costs continue to mount.
• Travel: The return to offices and the subsequent commuting saw spending on travel grow by 12 per cent versus January, while the amount spent on fuel and electric vehicle charging grew by three per cent month-on-month. However, with fuel costs having risen significantly, spending on filling up (or charging) vehicles in February has increased by 70 per cent on the same month last year.

Ways to pay:

The rise of contactless continued in February, particularly via mobile. Transactions involving the use of a mobile phone to tap and go increased by five per cent month-on-month and 180 per cent year-on-year. Contactless transactions by volume plateaued although have grown by 58 per cent compared to last January.

Mark Nalder, Head of Payments at Nationwide Building Society, said: “Non-essential spending continues to be significantly higher than it was in 2021, given the lockdown situation the country was facing at the start of last year. However, the fall in spending in February compared to last month suggests that people are continuing to try and rein in spending where they can, given the rising cost of living.

“The removal of the Plan B restrictions has led to an increase in spending on travel during February as more people returned to offices, while a natural by-product of more people getting back out is greater spending on eating, drinking and leisure. And as the weather begins to improve, it is perhaps no wonder that holiday spend continues to be a major destination for our money.

“As inflation impacts how much money we can spend and where we are spending it, we expect overall spend to outstrip last year, particularly in areas where the rising cost of living is likely to be having a big impact, such as utilities, bills and fuel. We do, however, anticipate the need for many households to curb non-essential spending as they do their best to balance family finances.”

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